The ABC Inc. operates several stores selling pine furniture. Selected financial ratios are as follows: Current ratio Quick ratio Receivables turnover Inventory turnover Debt to equity ratio Return on assets Gross margin Profit margin Return on equity 2024 2.35 0.96 10.43 5.61 0.88 5.5% 8.7% 3.8% 14.2% 2023 2.30 0.91 9.61 5.37 0.77 6.0% 12.6% 4.2% 13.0% 2022 2.25 0.88 8.69 5.07 0.58 9.8% 18.7% 6.9% 12.0% In 2022, ABC Inc decided to change its strategy from selling high-end furniture to selling lower-cost items in order to be more competitive and began importing low-cost furniture. In order to do this the company invested in new warehouse facilities and its total assets grew $2.5 million in 2022 to $4.5 million in 2023 and finally to $5 million in 2024. Required a) Briefly discuss what these financial ratios indicate about how ABC Inc was affected by its decision to change its strategy in 2022.
The ABC Inc. operates several stores selling pine furniture. Selected financial ratios are as follows: Current ratio Quick ratio Receivables turnover Inventory turnover Debt to equity ratio Return on assets Gross margin Profit margin Return on equity 2024 2.35 0.96 10.43 5.61 0.88 5.5% 8.7% 3.8% 14.2% 2023 2.30 0.91 9.61 5.37 0.77 6.0% 12.6% 4.2% 13.0% 2022 2.25 0.88 8.69 5.07 0.58 9.8% 18.7% 6.9% 12.0% In 2022, ABC Inc decided to change its strategy from selling high-end furniture to selling lower-cost items in order to be more competitive and began importing low-cost furniture. In order to do this the company invested in new warehouse facilities and its total assets grew $2.5 million in 2022 to $4.5 million in 2023 and finally to $5 million in 2024. Required a) Briefly discuss what these financial ratios indicate about how ABC Inc was affected by its decision to change its strategy in 2022.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
J1
Transcribed Image Text:The ABC Inc. operates several stores selling pine furniture. Selected financial ratios are as follows:
Current ratio
Quick ratio
Receivables turnover
Inventory turnover
Debt to equity ratio
Return on assets
Gross margin
Profit margin
Return on equity
2024
2.35
0.96
10.43
5.61
0.88
5.5%
8.7%
3.8%
14.2%
2023
2.30
0.91
9.61
5.37
0.77
6.0%
12.6%
4.2%
13.0%
2022
2.25
0.88
8.69
5.07
0.58
9.8%
18.7%
6.9%
12.0%
In 2022, ABC Inc decided to change its strategy from selling high-end furniture to selling lower-cost items in order to be more competitive
and began importing low-cost furniture. In order to do this the company invested in new warehouse facilities and its total assets grew from
$2.5 million in 2022 to $4.5 million in 2023 and finally to $5 million in 2024.
Required
a) Briefly discuss what these financial ratios indicate about how ABC Inc was affected by its decision to change its strategy in 2022.
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